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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
March 2009:
Defined Benefit Pensions:
Survey Results of the Nation's Largest Private Defined Benefit Plan
Sponsors:
GAO-09-291:
GAO Highlights:
Highlights of GAO-09-291, a report to congressional requesters.
Why GAO Did This Study:
The number of private defined benefit (DB) pension plans, an important
source of retirement income for millions of Americans, has declined
substantially over the past two decades. For example, about 92,000
single-employer DB plans existed in 1990, compared to just under 29,000
single-employer plans today. Although this decline has been
concentrated among smaller plans, there is a widespread concern that
large DB plans covering many participants have modified, reduced, or
otherwise frozen plan benefits in recent years. GAO was asked to
examine (1) what changes employers have made to their pension and
benefit offerings, including to their defined contribution (DC) plans
and health offerings over the last 10 years or so, and (2) what changes
employers might make with respect to their pensions in the future, and
how these changes might be influenced by changes in pension law and
other factors.
To gather information about overall changes in pension and health
benefit offerings, GAO asked 94 of the nation’s largest DB plan
sponsors to participate in a survey; 44 of these sponsors responded.
These respondents represent about one-quarter of the total liabilities
in the nation’s single-employer insured DB plan system as of 2004. The
survey was largely completed prior to the current financial market
difficulties of late 2008.
What GAO Found:
GAO’s survey of the largest sponsors of DB pension plans revealed that
respondents have made a number of revisions to their retirement benefit
offerings over the last 10 years or so. Generally speaking, they have
changed benefit formulas; converted to hybrid plans (such plans are
legally DB plans, but they contain certain features that resemble DC
plans); or frozen some of their plans. Eighty-one percent of responding
sponsors reported that they modified the formula for computing benefits
for one or more of their DB plans. Among all plans reported by
respondents, 28 percent of these (or 47 of 169) plans were under a plan
freeze—an amendment to the plan to limit some or all future pension
accruals for some or all plan participants. The vast majority of
respondents (90 percent, or 38 of 42 respondents) reported on their
401(k)-type DC plans. Regarding these DC plans, a majority of
respondents reported either an increase or no change to the employer or
employee contribution rates, with roughly equal responses to both
categories. About 67 percent of (or 28 of 42) responding firms plan to
implement or have already implemented an automatic enrollment feature
to one or more of their DC plans. With respect to health care
offerings, all of the (42) responding firms offered health care to
their current workers. Eighty percent (or 33 of 41 respondents) offered
a retiree health care plan to at least some current workers, although
20 percent of (or 8 of 41) respondents reported that retiree health
benefits were to be fully paid by retirees. Further, 46 percent of (or
19 of 41) responding firms reported that it is no longer offered to
employees hired after a certain date.
At the time of the survey, most sponsors reported no plans to revise
plan formulas, freeze or terminate plans, or convert to hybrid plans
before 2012. When asked about the influence of recent legislation or
changes to the rules for pension accounting and reporting, responding
firms generally indicated these were not significant factors in their
benefit decisions. Finally, a minority of sponsors said they would
consider forming a new DB plan. Those sponsors that would consider
forming a new plan might do so if there were reduced unpredictability
or volatility in DB plan funding requirements and greater scope in
accounting for DB plans on corporate balance sheets. The survey results
suggest that the long-time stability of larger DB plans is now
vulnerable to the broader trends of eroding retirement security. The
current market turmoil appears likely to exacerbate this trend.
View GAO-09-291 or key components. For more information, contact
Barbara Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov.
[End of section]
Contents:
Letter:
From January 1997 to the Time of the Survey Response, Large Sponsors of
DB Plans Have Revised Their Benefit Offerings in Various Ways:
At the Time of the Survey, Large DB Sponsors Anticipated Making Few
Additional Changes to DB Plans:
Conclusions:
Agency Comments:
Appendix I: Survey Results of the Nation's Largest Private DB Plan
Sponsors:
Appendix II: Scope and Methodology:
Appendix III: GAO Contact and Staff Acknowledgments:
Abbreviations:
DB: defined benefit:
DC: defined contribution:
CUSIP: Committee on Uniform Securities Identification Procedures:
ERISA: Employee Retirement Income Security Act of 1974:
EIN: Employee Identification Number:
FAS: Financial Accounting Standard:
FASB: Financial Accounting Standards Board:
HRA: health reimbursement arrangement:
HSA: health savings account:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
PBGC: Pension Benefit Guaranty Corporation:
PPA: Pension Protection Act of 2006:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 30, 2009:
The Honorable Charles E. Schumer:
Vice Chairman:
Joint Economic Committee:
United States Senate:
The Honorable Robert P. Casey, Jr.
United States Senate:
The number of private defined-benefit (DB) pension plans, an important
source of retirement income for millions of Americans, has declined
substantially over the past two decades[Footnote 1]. For example, about
92,000 single-employer DB plans existed in 1990 compared to just under
29,000 single-employer plans today. At the same time, the number of
defined-contribution (DC) pension plans, such as 401(k)-type plans, has
grown dramatically and resulted in a shift from DB plans to DC plans.
For example, as of 2006, the Department of Labor estimates that there
are 2.3 participants in a single-employer DC plan for each participant
in a single-employer DB plan. One consequence of this shift from DB to
DC plans is a shift of risk and responsibility to individual employees
and away from the plan sponsors. In contrast to this overall trend,
more large DB plans, or plans with more than 5,000 participants, exist
today than did in 1990.[Footnote 2] Despite the relative resilience of
these large plans, there is widespread concern that sponsors of these
plans have frozen or otherwise modified plan benefits.[Footnote 3]
Additionally, over the last few years, these plan sponsors have had to
deal with a very dynamic environment for pensions--especially with
respect to pension legislation, changes to pension-related accounting
rules, and a now rapidly worsening financial environment.
Employers have also been wrestling with higher health care costs and
making a number of changes to health benefit offerings. For example,
many employers that offer health benefits have required workers to pay
a higher share of out-of-pocket costs, and some have recently
introduced consumer-directed health plans, which trade lower premiums
for significantly higher deductibles.[Footnote 4] Similar to coverage
for active workers, an increasing share of retiree health benefits
costs is being shifted to retirees and many employers have terminated
benefits for future retirees--a trend that experts believe will
continue.
Plan sponsors have also had to react to changes in the legislation
governing plan funding and sponsorship and in accounting rules
determining how pension assets and liabilities should be publicly
reported. The current financial market turmoil has also led to
additional stress on many plan sponsors. For example, a benefit
consulting group recently estimated that the recent stock downturn has
left DB pension plans at the nation's largest companies underfunded by
$409 billion--erasing an estimated $60 billion pension surplus at year-
end 2007. On average, these large firms' pension assets were only able
to cover 75 percent of their obligations, down from the estimated 104
percent a year prior.
To better understand what has happened in the last decade or so, and
what may happen in the future to pension plans as indicated by the
actions of large DB sponsors, you asked us to address:
(1) what changes employers have made to their pension and benefit
offerings, including to their DC plans and health offerings, over the
last 10 years or so, and:
(2) what changes employers might make with respect to their pensions in
the future, and how these changes might be influenced by changes in
pension law and other factors.
To determine the status of sponsors' current benefit offerings, as well
as possible prospective changes to pension offerings in the context of
the current legal and regulatory environment, we developed, pretested,
and administered an original survey of large DB plan sponsors.
Additionally we analyzed and reviewed other employer studies and
reviewed related literature. Appendix I contains revised slides that
update the preliminary briefing information that we provided to your
staff, as well as to officials from the Pension Benefit Guaranty
Corporation (PBGC), the Department of Labor, and the Department of the
Treasury in February 2009.
To achieve our survey objectives, we developed and pretested a
questionnaire that we sent to the largest DB pension sponsors from
PBGC's 2004 Form 5500 Research Database. We further limited our study
population to those sponsors that were also listed on either the
Fortune 500 or Global 500 lists. We administered the survey to the 94
largest sponsors (by total participants in all sponsored plans) for
which we were able to obtain information for the firm representative
who would be most knowledgeable on pension and benefits issues. While
94 firms we identified for the survey do not represent a statistically
generalizable sample of the roughly 23,500 total DB plan sponsors we
identified in the Form 5500 Research Database, we estimate that these
94 sponsors represented 50 percent of the total liabilities and 39
percent of the total participants (active, retired, and separated-
vested) in the PBGC insured single-employer DB system as of 2004. Given
their relative significance, the 94 sponsors, by themselves, represent
an important share of the DB system. Among the 44 plan sponsors that
ultimately responded to the survey, we estimate that these sponsors
represent 25 percent of the total liabilities and 19 percent in the
single-employer DB system as of 2004 (see Appendix I, slide 5).
Further, the responding sponsors represented a diversity of industries
such as manufacturing; information; finance or insurance; and other
various industries (see Appendix I, slide 7). Additionally, responding
firms reported employing, on average, 75,000 employees in their U.S.
operations in 2006.
The survey was administered as a Web-based survey that was available
for access from December 17, 2007, to October 31, 2008. The vast
majority of respondents completed the survey at least a few months
prior to the recent financial downturn. Our analysis is unlikely to
capture any related trends.
We initiated our audit work in April 2006. We issued results from our
survey regarding frozen plans in July 2008.[Footnote 5] We completed
our audit work for this report in March 2009 in accordance with all
sections of GAO's Quality Assurance Framework that are relevant to our
objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions.
See Appendix II for a more detailed discussion about our methodology.
From January 1997 to the Time of the Survey Response, Large Sponsors of
DB Plans Have Revised Their Benefit Offerings in Various Ways:
Our survey of the largest sponsors of DB pension plans reveals that
they have made a number of revisions to their benefit offerings over
approximately the last 10 years or so. Generally, respondents reported
that they revised benefit formulas, converted some plans to hybrid
plans (such as cash balance plans),[Footnote 6] or froze some of their
plans. For example, 81 percent[Footnote 7] of responding sponsors
reported that they modified the formulas of one or more of their DB
plans.
Respondents were asked to report changes for plans or benefits that
covered only nonbargaining employees, as well as to report on plans or
benefits that covered bargaining unit employees. Fifty-eight percent
[Footnote 8] of respondents who reported on plans for collective-
bargaining employees indicated they had generally increased the
generosity of their DB plan formulas between January 1997 and the time
of their response (see Appendix I, slide 12). In contrast, 48 percent
[Footnote 9] of respondents reporting on plans for their nonbargaining
employees had generally decreased the generosity of their DB plan
formulas since 1997.[Footnote 10] "Unpredictability or volatility of DB
plan funding requirements" was the key reason cited for having changed
the benefit formulas of plans covering nonbargaining employees (see
Appendix I, slide 14).[Footnote 11] "Global or domestic competitive
pressures" in their industry was the key reason cited for the changes
to the plans covering collectively bargained employees (see Appendix I,
slide 13).[Footnote 12] With regard to plans for bargaining employees,
however, a number of the sponsors who offered reasons for changes to
bargaining unit plans also volunteered an additional reason for having
modified their plans covering bargaining employees. Specifically, these
sponsors wrote that inflation or a cost-of-living adjustment was a key
reason for their increase to the formula. This suggests that such plans
were flat-benefit plans[Footnote 13] that may have a benefit structure
that was increased annually as part of a bargaining agreement.
Meanwhile, sponsors were far more likely to report that they had
converted a DB plan covering nonbargaining unit employees to a hybrid
plan design than to have converted DB plans covering collectively
bargained employees. For example, 52 percent[Footnote 14] of
respondents who reported on plans for nonbargaining unit employees had
converted one or more of their traditional plans to a cash balance or
other hybrid arrangement (see Appendix I, slide 15). Many cited "trends
in employee demographics" as the top reason for doing so (see Appendix
I, slide 16). Among respondents who answered the cash balance
conversion question for their collectively bargained plans, 21
percent[Footnote 15] reported converting one or more of their
traditional plans to a cash balance plan.
Regarding plan freezes, 62 percent[Footnote 16] of the responding firms
reported a freeze, or a plan amendment to limit some or all future
pension accruals for some or all plan participants, for one or more of
their plans (see Appendix I, slide 18). Looking at the respondent's
plans in total, 8 percent of the plans[Footnote 17] were described as
hard frozen, meaning that all current employees who participate in the
plan receive no additional benefit accruals after the effective date of
the freeze, and that employees hired after the freeze are ineligible to
participate in the plan. Twenty percent[Footnote 18] of respondents'
plans were described as being under a soft freeze, partial freeze, or
"other" freeze.[Footnote 19] Although not statistically generalizable,
the prevalence of freezes among the large sponsor plans in this survey
is generally consistent with the prevalence of plan freezes found among
large sponsors through a previous GAO survey that was statistically
representative.[Footnote 20]
The vast majority of respondents (90 percent)[Footnote 21] to our most
recent survey also reported on their 401(k)-type DC plans. At the time
of this survey, very few respondents reported having reduced employer
or employee contribution rates for these plans. The vast majority
reported either an increase or no change to the employer or employee
contribution rates, with generally as many reporting increases to
contributions as reporting no change (see Appendix I, slide 21). The
differences reported in contributions by bargaining status of the
covered employees were not pronounced. Many (67 percent)[Footnote 22]
of responding firms plan to implement or have already implemented an
automatic enrollment feature to one or more of their DC plans.
According to an analysis by the Congressional Research Service, many DC
plans require that workers voluntarily enroll and elect contribution
levels, but a growing number of DC plans automatically enroll workers.
Additionally, certain DC plans with an automatic enrollment feature may
gradually escalate the amount of the workers' contributions on a
recurring basis. However, the Pension Protection Act of 2006 (PPA)
provided incentives to initiate automatic enrollment for those plan
sponsors that may not have already adopted an automatic enrollment
feature.[Footnote 23] Seventy-two percent[Footnote 24] of respondents
reported that they were using or planning to use automatic enrollment
for their 401(k) plans covering nonbargaining employees, while 46
percent[Footnote 25] indicated that they were currently doing so or
planning to do so for their plans covering collective-bargaining
employees (see Appendix I, slide 22). The difference in automatic
enrollment adoption by bargaining status may be due to the fact that
nonbargaining employees may have greater dependence on DC benefits.
That is, a few sponsors noted they currently automatically enroll
employees who may no longer receive a DB plan. Alternatively, automatic
enrollment policies for plans covering collective-bargaining employees
may not yet have been adopted, as that plan feature may be subject to
later bargaining.
Health benefits are a large component of employer offered benefits. As
changes to the employee benefits package may not be limited to
pensions, we examined the provision of health benefits to active
workers, as well as to current and future retirees. We asked firms to
report selected nonwage compensation costs or postemployment benefit
expenses for the year 2006 as a percentage of base pay. Averaging these
costs among all those respondents reporting such costs, we found that
health care comprised the single largest benefit cost. Active employee
health plans and retiree health plans combined to represent 15 percent
of base pay[Footnote 26] (see Appendix I, slide 24). DB and DC pension
costs were also significant, representing about 14 percent of base pay.
[Footnote 27] All of the respondents[Footnote 28] reporting on health
benefits offered a health care plan to active employees and contributed
to at least a portion of the cost. Additionally, all of these
respondents provided health benefits to some current retirees, and
nearly all were providing health benefits to retirees under the age of
65 and to retirees aged 65 and older. Eighty percent[Footnote 29] of
respondents offered retiree health benefits to at least some future
retirees (current employees who could eventually become eligible for
retiree benefits), although 20 percent[Footnote 30] of respondents
offered retiree health benefits that were fully paid by the retiree.
[Footnote 31] Further, it appears that, for new employees among the
firms in our survey, a retiree health benefit may be an increasingly
unlikely offering in the future, as 46 percent[Footnote 32] of
responding firms reported that retiree health care was no longer to be
offered to employees hired after a certain date (see Appendix I, slide
25).
We asked respondents to report on how an employer's share of providing
retiree health benefits had changed over the last 10 years or so for
current retirees. Results among respondents generally did not vary by
the bargaining status of the covered employees (Appendix I, slide 27).
However, 27 percent[Footnote 33] of respondents reporting on their
retiree health benefits for plans covering nonbargaining retirees
reported increasing an employer's share of costs, while only 13 percent
[Footnote 34] of respondents reporting on their retiree health benefits
for retirees from collective-bargaining units indicated such an
increase. Among those respondents with health benefits covering
nonbargained retirees, they listed "large increases in the cost of
health insurance coverage for retirees" as a major reason for
increasing an employer's share--not surprisingly. This top reason was
the same for all of these respondents, as well as just those
respondents reporting a decrease in the cost of an employer's share.
[Footnote 35] Additionally, a number of respondents who mentioned
"other" reasons for the decrease in costs for employers cited the
implementation of predefined cost caps.[Footnote 36]
Our survey also asked respondents to report on their changes to retiree
health offerings for future retirees or current workers who may
eventually qualify for postretirement health benefits. As noted
earlier, 46 percent of respondents reported they currently offered no
retiree health benefits to active employees (i.e., current workers)
hired after a certain date. Reporting on changes for the last decade,
54 percent[Footnote 37] of respondents describing their health plans
for nonbargaining future retirees indicated that they had decreased or
eliminated the firm's share of the cost of providing health benefits
(see Appendix I, slide 30).[Footnote 38] A smaller percentage (41
percent)[Footnote 39] of respondents reporting on their health benefits
for collectively bargained future retirees indicated a decrease or
elimination of benefits. The need to "match or maintain parity with
competitor's benefits package" was the key reason for making the
retiree health benefit change for future retirees among respondents
reporting on their collective-bargaining employees (Appendix I, slide
32).
We asked respondents to report their total, future liability (i.e.,
present value in dollars) for retiree health as of 2004.[Footnote 40]
As of the end of the 2004 plan year, 29 respondents reported a total
retiree health liability of $68 billion. The retiree health liability
reported by our survey respondents represents 40 percent of the $174
billion in DB liabilities that we estimate for these respondents' DB
plans as of 2004. According to our estimates, the DB liabilities for
respondents reporting a retiree health liability were supported with
$180 billion in assets as of 2004. We did not ask respondents about the
assets underlying the reported $68 billion in retiree health
liabilities. Nevertheless, these liabilities are unlikely to have much
in the way of prefunding or supporting assets, due in large part to
certain tax consequences.[Footnote 41] Although we did not ask sponsors
about the relative sustainability of retiree health plans given the
possible difference in the funding of these plans relative to DB plans,
we did ask respondents to report the importance of offering a retiree
health plan for purposes of firm recruitment and retention.
Specifically, we asked about the importance of making a retiree health
plan available relative to making a DB or DC pension plan available.
Only a few respondents reported that offering DB or DC plans was less
(or much less) important than offering a retiree health plan.
At the Time of the Survey, Large DB Sponsors Anticipated Making Few
Additional Changes to DB Plans:
Responding before October 2008--before the increasingly severe
downturns in the national economy--most survey respondents reported
they had no plan to revise benefit formulas or freeze or terminate
plans, or had any intention to convert to hybrid plans before 2012.
Survey respondents were asked to consider how their firms might change
specific employee benefit actions between 2007 and 2012 for all
employees. The specific benefit actions they were asked about were a
change in the formula for calculating the rates of benefit accrual
provided by their DB plan, a freeze of at least one DB plan, the
conversion of traditional DB plans to cash balance or other hybrid
designs, and the termination of at least one DB plan. For each
possibility, between 60 percent and 80 percent[Footnote 42] of
respondents said their firm was not planning to make the prospective
change (see appendix I, slide 34).
When asked about how much they had been or were likely to be influenced
by recent legislation or account rule changes, such as PPA or the
adoption of Financial Accounting Standards Board (FASB) requirements to
fully recognize obligations for postretirement plans in financial
statements, responding firms generally indicated these were not
significant factors in their decisions on benefit offerings. Despite
these legislative and regulatory changes to the pension environment,
most survey respondents indicated that it was unlikely or very unlikely
that their firms would use assets from DB plans to fund qualified
health plans; increase their employer match for DC plans; terminate at
least one DB plan; amend at least one DB plan to change (either
increase or decrease) rates of future benefit accruals; convert a DB
plan to a cash balance or hybrid design plan, or replace a DB plan with
a 401(k)-style DC plan.
Additionally, most respondents indicated "no role" when asked whether
PPA, FASB, or pension law and regulation prior to PPA had been a factor
in their decision (see appendix 1, slide 35). Though the majority of
these responses indicated a trend of limited action related to PPA and
FASB, it is interesting to note that, among the minority of firms that
reported they were likely to freeze at least one DB plan for new
participants only, most indicated that PPA played a role in this
decision.[Footnote 43] Similarly, while only a few firms indicated that
it was likely they would replace a DB plan with a 401(k)-style DC plan,
most of these firms also indicated that both PPA and FASB played a role
in that decision.[Footnote 44]
There were two prospective changes that a significant number of
respondents believed would be likely or very likely implemented in the
future. Fifty percent[Footnote 45] of respondents indicated that adding
or expanding automatic enrollment features to 401(k)-type DC plans was
likely or very likely, and 43 percent[Footnote 46] indicated that PPA
played a major role in this decision.[Footnote 47] This is not
surprising, as PPA includes provisions aimed at encouraging automatic
enrollment and was expected to increase the use of this feature. Forty-
five percent[Footnote 48] of respondents indicated that changing the
investment policy for at least one DB plan to increase the portion of
the plan's portfolio invested in fixed income assets was likely or very
likely--with 21 percent[Footnote 49] indicating that PPA and 29 percent
[Footnote 50] indicating that FASB played a major or moderate role in
this decision[Footnote 51] (see appendix 1, slide 36). Our survey did
not ask about the timing of this portfolio change, so we cannot
determine the extent of any reallocation that may have occurred prior
to the decline in the financial markets in the last quarter of 2008.
Finally, responding sponsors did not appear to be optimistic about the
future of the DB system, as the majority stated there were no
conditions under which they would consider forming a new DB plan. For
the 26 percent[Footnote 52] of respondents that said they would
consider forming a new DB plan, some indicated they could be induced by
such changes as a greater scope in accounting for DB plans on corporate
balance sheets and reduced unpredictability or volatility of plan
funding requirements (see appendix I, slides 38). Conditions less
likely to cause respondents to consider a new DB plan included
increased regulatory requirements of DC plans and reduced PBGC premiums
(see appendix I, slide 39).
Conclusions:
Until recently, DB pension plans administered by large sponsors
appeared to have largely avoided the general decline evident elsewhere
in the system since the 1980s. Their relative stability has been
important, as these plans represent retirement income for more than
three-quarters of all participants in single-employer plans. Today,
these large plans no longer appear immune to the broader trends that
are eroding retirement security. While few plans have been terminated,
survey results suggest that modifications in benefit formulas and plan
freezes are now common among these large sponsors. This trend is most
pronounced among nonbargained plans but is also apparent among
bargained plans. Yet, this survey was conducted before the current
economic downturn, with its accompanying market turmoil. The fall in
asset values and the ensuing challenge to fund these plans places even
greater stress on them today.
Meanwhile, the survey findings, while predating the latest economic
news, add to the mounting evidence of increasing weaknesses throughout
the existing private pension system that include low contribution rates
for DC plans, high account fees that eat into returns, and market
losses that significantly erode the account balances of those workers
near retirement. Moreover, the entire pension system still only covers
about 50 percent of the workforce, and coverage rates are very modest
for low-wage workers. Given these serious weaknesses in the current tax-
qualified system, it may be time for policymakers to consider
alternative models for retirement security.
Agency Comments:
We provided a draft of this report to the Department of Labor, the
Department of the Treasury, and PBGC. The Department of the Treasury
and PBGC provided technical comments, which we incorporated as
appropriate.
We are sending copies of this report to the Secretary of Labor, the
Secretary of the Treasury, and the Director of the PBGC, appropriate
congressional committees, and other interested parties. In addition,
the report will be available at no charge on GAO's Web site at
[hyperlink, http://www.gao.gov].
If you have or your staffs any questions about this report, please
contact me at (202) 512-7215 or bovbjergb@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made key contributions
are listed in appendix III.
Signed by:
Barbara D. Bovbjerg, Director:
Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Survey Results of the Nation's Largest Private DB Plan
Sponsors:
Defined Benefit (DB) Pensions: Survey Results of the Nation’s Largest
Private DB Plan Sponsors:
Preliminary Findings:
February 24, 2009:
Survey Objectives:
* Assess the impact of recent developments facing sponsors of the
nation’s largest private sector DB plans:
1)What recent changes have employers made to their pension and benefit
offerings?
2) What changes might employers make with respect to their pensions in
the future, and how might these changes be influenced by changes in
pension law and other factors?
GAO Survey of the Largest DB Sponsors: Overview of Survey and Topics:
The survey consisted of 105 questions and covered a broad range of
areas including:
* the status of current DB plans;
* the status of frozen plans (if any) and largest frozen plan (if
applicable);
* health care information (for active employees and retirees);
* non-wage compensation targets and priorities;
* pension and other benefit practices/changes over the last ten years
or so and reasons for those changes;
- these questions were separated into two sections: one for plans
covering non-bargaining unit employees and one for plans covering
bargaining units;
* prospective benefit plan changes and the influence of laws and
accounting rules on those prospective changes;
* opinions about the possible formation of a new DB plan.
GAO Survey of the Largest DB Sponsors: Sampling/Summary Statistics:
* Target group -A selection sample of the largest 100 private sector
sponsors of DB plans that were also listed on the Fortune 500 or Global
500;
* Of the originally targeted 100 sponsors, we were able to obtain
contact information—typically the firm’s Director of Benefits—for 94
sponsors;
- Sponsors received a web based survey administered from November 2007
to October 2008; the vast majority of respondents completed the survey
prior to July 2008;
* 44 of the 94 sponsors responded;
* Responding firms often had multiple plans—a median of 2 plans and an
average of about 4 plans.
GAO Survey of the Largest DB Sponsors: Significance and Interpretation:
As a selection sample of the largest plans, results are not
generalizable to all DB plan sponsors.
However, the sample can serve as an important indicator of the health
of the private DB system and the sample’s possible importance to the
Pension Benefit Guaranty Corporation (PBGC).
The 44 sponsoring firms that responded represent an estimated:
* 25 percent (or $370 billion) of total DB system liabilities as of
2004;
* 19 percent (or 6 million) of the system’s DB participants (active,
separated-vested, retired as of 2004).
Among the responding firms, the largest individual self-reported
business line was manufacturing, with other key areas being finance and
information. (Figure 1).
These firms reported employing on average 75,000 employees in their
U.S. operations in 2006.
Figure 1: Large DB Plan Sponsors Most Common In Manufacturing
Industries:
[Refer to PDF for image: pie-chart]
DB Plan sponsors' major line of business (N = 42):
Manufacturing: 18;
Finance or Insurance: 7;
Information (Telecommunications, Other Communications): 5;
Other Industries (Retail Trade, Transportation): 12.
Source: GA analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
GAO Survey of the Largest DB Sponsors: Context:
The DB system has been in decline:
* Long term decline in number of private DB plans and percentage of
system participants who are active workers;
* Large net accumulated deficit ($11 billion) for Pension Benefit
Guaranty Corporation (PBGC) which insures private DB plans.
Developments affecting DB plans and sponsors:
* Pension Protection Act of 2006 and related legislation, which
tightened funding rules and raised PBGC premiums;
* New accounting rules, such as FAS 158, which highlighted importance
of plan underfunding on corporate balance sheets;
* Rising cost pressures from health insurance for active workers and
retirees.
Survey conducted prior to:
* Financial market turmoil of 2008;
* Detroit automakers, who have DB plans, seeking federal assistance;
* Rising unemployment;
* Recently legislated pension funding relief, the Worker, Retiree, and
Employer Recovery Act of 2008.
Overview: Survey Findings:
Between 1997 and October 2008:
* Revisions to DB plan features (e.g. benefit formulas, plan freezes,
hybrid plan conversions) were common, especially among sponsors’non-
bargained (NB) plans;
* Revisions to defined contribution (DC) plan features were most common
among sponsors’ NB plans;
- Many respondents reported having already implemented or planning to
implement auto-enrollment;
* Health insurance benefits to current retirees were still common,but
20 percent placed full costs on retirees; over 46 percent did not offer
benefit to some future retirees, or employees hired after a certain
date.
Most DB plan sponsors planned few changes before 2012.
Large DB Plan Sponsor Survey: Trends in DB Plan Sponsorship and Design:
Between 1997 and October 2008:
* Collectively bargained (CB) plans were more likely to report a
benefit formula improvement in generosity while NB plans were more
likely to report a decline in benefit formula generosity (Figure 2);
- For CB plans key reasons cited for changes were competitive economic
pressures and employee demographics (Figure 3);
- For NB plans key reasons cited for changes were funding
unpredictability, competitive economic pressures and employee
demographics (Figure 4).
* Respondents reported more conversions to hybrid designs among NB
plans (Figure 5).
- Top reasons for non-bargaining unit conversions: employee
demographics and unpredictable funding requirements (Figure 6).
Figure 2: Sponsors Reported DB Formula Changes as Generally More
Generous for Plans that are CB:
[Refer to PDF for image: horizontal bar graph]
How defined benefit formulas changed from January 1, 1997:
N = 40 (NB Plans), 24 CB Plans, 24 (both CB and NB).
Formula changed to increase generosity:
Respondents with plans covering CB employees: 58;
Respondents with plans covering NB employees: 12.
Formulas did not change:
Respondents with plans covering CB employees: 25;
Respondents with plans covering NB employees: 37.
Formula changed to decrease generosity:
Respondents with plans covering CB employees: 17;
Respondents with plans covering NB employees: 48.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: Nearly 40 percent of respondents did not respond to questions
regarding collectively bargained plans.
[End of figure]
Figure 3: Reasons for Formula Changes Varied by Bargaining Status of
the Plan: Plans Covering CB Employees:
[Refer to PDF for image: horizontal bar graph]
N = 18.
Global/domestic competitive economic pressures in your industry:
Major reason: 22%;
Moderate, minor reason: 39%;
Not a reason: 28%;
No response, not checked: 11%.
Demographics of bargaining unit (increasing average age):
Major reason: 11%;
Moderate, minor reason: 50%;
Not a reason: 33%;
No response, not checked: 6%.
401(k) or other defined contribution retirement plan benefits were
increased as a trade-off:
Major reason: 6%;
Moderate, minor reason: 11%;
Not a reason: 67%;
No response, not checked: 17%.
Other benefits for new hires were increased as a tradeoff:
Major reason: 0;
Moderate, minor reason: 0;
Not a reason: 78%;
No response, not checked: 22%.
401(k) or other defined contribution retirement plan benefits were
decreased as a trade-off:
Major reason: 0;
Moderate, minor reason: 0;
Not a reason: 83%;
No response, not checked: 17%.
Health benefits for active employees were reduced as a tradeoff:
Major reason: 0;
Moderate, minor reason: 0;
Not a reason: 83%;
No response, not checked: 17%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
33 percent of respondents selected Other as a Major Reason; 3 out of 6
respondents mention inflation or increased cost of living as the other
reason.
[End of figure]
Figure 4: Reasons for Formula Changes Vary by Bargaining Status of the
Plan: Plans Covering NB Employees:
[Refer to PDF for image: horizontal bar graph]
N = 24.
Unpredictability or volatility of DB plan funding requirements:
Major reason: 25%;
Moderate, minor reason: 46%;
Not a reason: 25%;
No response, not checked: 4%.
Global/domestic competitive economic pressures in your industry:
Major reason: 21%;
Moderate, minor reason: 42%;
Not a reason: 33%;
No response, not checked: 4%.
Trends in employee demographic (toward an older/younger workforce):
Major reason: 17%;
Moderate, minor reason: 54%;
Not a reason: 17%;
No response, not checked: 13%.
Pressure from shareholders to increase profitability:
Major reason: 13%;
Moderate, minor reason: 33%;
Not a reason: 50%;
No response, not checked: 4%.
To compensate for investment performance of DB plans:
Major reason: 0;
Moderate, minor reason: 42%;
Not a reason: 50%;
No response, not checked: 8%.
To compensate for reduced effectiveness of defined benefit plans as an
employee retention tool:
Major reason: 4%;
Moderate, minor reason: 25%;
Not a reason: 63%;
No response, not checked: 8%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
17 percent of respondents selected Other as a ‘major reason;’ 3 out of
5 respondents mention mergers or acquisitions as the other reason.
[End of figure]
Figure 5: Conversion to Hybrid/Cash Balance Plans:
[Refer to PDF for image: horizontal bar graph]
N = 40 (NB Plans), 24 CB Plans, 24 (both CB and NB).
Did not convert a traditional plan to a hybrid plan:
Respondents with plans covering CB employees: 79;
Respondents with plans covering NB employees: 48.
Converted a traditional plan to a hybrid plan:
Respondents with plans covering CB employees: 21;
Respondents with plans covering NB employees: 52.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
Figure 6: Reasons for Non-Bargaining Unit Conversions to Hybrid/Cash
Balance plans:
[Refer to PDF for image: horizontal bar graph]
N = 21.
Trends in employee demographic (toward an older/younger workforce):
Major reason: 24%;
Moderate, minor reason: 62%;
Not a reason: 10%;
No response, not checked: 5%.
Unpredictability or volatility of DB plan funding requirements:
Major reason: 10%;
Moderate, minor reason: 52%;
Not a reason: 33%;
No response, not checked: 5%.
Global/domestic competitive economic pressures in your industry:
Major reason: 10%;
Moderate, minor reason: 29%;
Not a reason: 43%;
No response, not checked: 19%.
Administrative or regulatory complexity involved in maintaining DB
plans:
Major reason: 5%;
Moderate, minor reason: 24%;
Not a reason: 62%;
No response, not checked: 10%.
Pension Protection Act of 2006 clarified legal uncertainty:
Major reason: 5%;
Moderate, minor reason: 14%;
Not a reason: 62%;
No response, not checked: 19%.
Large increase in cost of health insurance coverage:
Major reason: 0;
Moderate, minor reason: 24%;
Not a reason: 62%;
No response, not checked: 14%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
33 percent of respondents selected ‘other’ as a ‘major reason.’ In
‘other’ reasons listed by those respondents, 4 out of 9 listed merger
or acquisition as the major reason for conversion.
[End of figure]
Large DB Plan Sponsor Survey: Trends in DB Plan Sponsorship and
Design—Freezes and Termination:
* 62 percent (26 of 42) of respondents in the survey froze at least one
plan; however, these larger sponsors were likely to report multiple
plans;
* 28 percent of respondents plans were frozen (47 of a total of 169
plans); only 8 percent were under a hard freeze, or a type of plan
freeze in which all future benefit accruals cease. (Figure 7);
- the rate of plan freezes is generally consistent with rate found for
a subset of larger sponsors using a statistically representative sample
in previous report analyzing freeze data[A];
- prior report found larger sponsors were significantly less likely
than smaller sponsors to have implemented a hard freeze.
* Plan terminations were extremely rare among large plans, with only a
few occurring during the time the sample was selected and administered.
[A] See GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of
Participants and May Pose Retirement Income Challenges, [hyperlink,
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 21,
2008)
[End of figure]
Figure 7: Freeze Patterns among Respondents and their Plans:
[Refer to PDF for image: 2 pie-charts]
N = 42 (respondents); 169 (plans).
Freezes by firm/sponsors (i.e. Not by plan):
Firms with no frozen plans: 38%;
Firms with one or more frozen plans: 62%.
Freezes by all firm's plans:
Hard frozen: 8%;
Soft/partial/other freeze: 20%;
Not frozen: 72%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
Trends in 401(k) Contributions among Large DB Plan Sponsors:
* Most DB plan sponsors also offered a DC plan, typically a 401(k)plan.
* From 1997 to the time of survey response, most DB sponsors either
increased or did not change employer contributions to 401(k) plans for
their NB employees (Figure 8);
- Main reasons for change included redesigned matching formula as well
as compensation adjustments to attract top employees.
* The vast majority of respondents reported that plans covering NB
employees either increased or did not change employee contributions;
- Main reasons among respondents reporting increased contributions
included addition of automatic enrollment feature to one or more plans.
* 72 percent of large sponsors reported either using or planning to use
auto enrollment for plans covering NB employees (Figure 9).
Trends in 401(k) Contributions among Large DB Plan Sponsors: Bargaining
Unit Employees:
* From 1997 to the time of survey response, most DB sponsors either
increased or did not change employer contributions to 401(k) plans for
their bargaining unit employees (Figure 8);
- No single reason stood out for this result.
* Bargaining unit employees of most sponsors did not change employee
contributions. (Figure 8)
* 50 percent of large sponsors with plans covering CB employees
reported either not using or not planning to use auto enrollment
(Figure 9).
Figure 8: Employer and Employee 401(k) Contributions for Non Bargaining
and Bargaining Unit Employees:
[Refer to PDF for image: horizontal bar graph]
Change in level of employee and employer contributions to 401(k) plans
between January 1997 and submission of surveys:
N = 40 (NB Employer Conts.); 39 (NB Employer Conts.); 24 CB
Employee/Employer Conts); 24 (NB & CB Employer Conts.); 23 (NB & CB
Employee Conts.).
Employee contributions (bargaining unit):
Increase: 33%;
Did not change: 54%;
Decreased: 4%;
No response: 8%.
Employee contributions (non-bargaining unit):
Increase: 46%;
Did not change: 36%;
Decreased: 10%;
No response: 8%.
Employer contributions (bargaining unit):
Increase: 42%;
Did not change: 50%;
Decreased: 4%;
No response: 4%.
Employer contributions (non-bargaining unit):
Increase: 45%;
Did not change: 37%;
Decreased: 15%;
No response: 2%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
Figure 9: Prevalence of 401(k) Auto-Enrollment Feature for Non
Bargaining and Bargaining Unit Employees:
[Refer to PDF for image: horizontal bar graph]
N = 39 (NB plans); 24 (CB plans); 24 (NB & CB).
Not auto enrolling, not planning to auto enroll:
Respondents with plans covering CB employees: 50;
Respondents with plans covering NB employees: 28.
Planning to auto enroll:
Respondents with plans covering CB employees: 21;
Respondents with plans covering NB employees: 18;
Currently auto enrolling:
Respondents with plans covering CB employees: 25;
Respondents with plans covering NB employees: 54.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
Large DB Plan Sponsor Survey: Health Benefits for Active Employees and
Retirees:
* Health care was the single largest benefit as a percentage of base
pay (Figure 10).
* All responding DB plan sponsors offered health insurance to active
employees and contributed to the cost.
* All responding DB plan sponsors offered health insurance to at least
some current retirees—nearly all to both pre-age 65 and age 65-plus
employees;
- 80 percent provided health insurance to at least some active
employees who become eligible for the benefit upon retirement;
- 20 percent provided health insurance that was fully paid by the
retired employee (Figure 11).
Figure 10: For Large DB Sponsors, Health Insurance for Active Employees
Was the Largest Component of Non-wage Compensation:
[Refer to PDF for image: horizontal bar graph]
Average percentage of firms' current base pay devoted to non-wage
compensation:
N = 15-25.
Active employee health plans:
Percentage of base pay: 10.8%.
Defined benefit retirement/pension plan:
Percentage of base pay: 10.3%.
Pay for time not worked (vacation/sick leave, holidays):
Percentage of base pay: 8.6%.
Retiree health plan(s):
Percentage of base pay: 4.2%.
Defined contribution retirement/pension plan:
Percentage of base pay: 4.1%.
Other benefits (short/long term life insurance, premium pay, disability
insurance, etc.):
Percentage of base pay: 3.4%.
Other retirement/pension plans:
Percentage of base pay: 0.4%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: Chart categories not mutually exclusive; N varies from 15-25 as
respondents were not required to select a response to each category.
[End of figure]
Figure 11: Provision of Health Benefits to Active Employees, Current or
Future Retirees:
[Refer to PDF for image: horizontal bar graph]
N = 41.
Firms methods for providing retiree health benefits:
We continue to offer retiree health benefits to all or some employees
and it is partially paid by the employer:
Percentage of base pay: 80%.
Employees hired after a certain date are no longer offered retiree
health benefits:
Percentage of base pay: 46%.
We continue to offer retiree health benefits and it is all paid by the
participant:
Percentage of base pay: 20%.
Other:
Percentage of base pay: 12%.
We continue to offer retiree health benefits to some or all active
employees and it is all paid by the employer:
Percentage of base pay: 2%.
Employees must retire before a certain date:
Percentage of base pay: 0.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
Large DB Plan Sponsor Survey: Health Benefits for Current Retirees:
Compared to respondents reporting on their benefits covering CB
employees, respondents with NB employees reported decrease in the
employer’s share of the cost of providing health benefits to current
retirees (Figure 12).
* Main reasons were increases in cost of health insurance for retirees
and for active employees (Figure 13).
A plurality of respondents with CB employees reported no change in
firm’s share of the cost of providing health benefits to current
retirees.
Figure 12: Changes in Share of Health Benefit Costs for Current
Retirees by Non-bargaining Unit and Bargaining Unit Firms:
[Refer to PDF for image: horizontal bar graph]
N = 40 (NB plans); 23 (CB plans); 23 (both NB and CB plans).
Employer Share of Cost Did Not Change:
Respondents with plans covering CB employees: 39%;
Respondents with plans covering NB employees: 30%.
Employer Share of Cost Decreased:
Respondents with plans covering CB employees: 35%;
Respondents with plans covering NB employees: 35%.
Employer Share of Cost Increased:
Respondents with plans covering CB employees: 13%;
Respondents with plans covering NB employees: 27%.
Employer Did Not Offer Benefit, No Response;
Respondents with plans covering CB employees: 9%;
Respondents with plans covering NB employees: 7%.
Employer Eliminated Benefit;
Respondents with plans covering CB employees: 4%;
Respondents with plans covering NB employees: 0%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
Figure 13: Reasons for Changes in Non-Bargaining Unit Firms' Share of
Health Benefit Costs for Current Retirees:
[Refer to PDF for image: horizontal bar graph]
N = 25.
Large increases in cost of health insurance coverage for retirees:
Major reason: 72%;
Moderate, minor reason: 24%;
Not a reason: 0%;
No response, not checked: 4%.
Large increases in cost of health insurance coverage for active
employees:
Major reason: 24%;
Moderate, minor reason: 44%;
Not a reason: 28%;
No response, not checked: 4%.
Unwillingness/inability to completely shift costs to current retirees:
Major reason: 20%;
Moderate, minor reason: 32%;
Not a reason: 40%;
No response, not checked: 8%.
Rapidly rising costs due to adverse demographic workforce projections:
Major reason: 8%;
Moderate, minor reason: 24%;
Not a reason: 60%;
No response, not checked: 8%.
Uncertainty surrounding the application of accounting rule changes for
health insurance costs:
Major reason: 8%;
Moderate, minor reason: 24%;
Not a reason: 64%;
No response, not checked: 4%.
Maintain comparability with similar provisions in collective bargaining
agreements:
Major reason: 0;
Moderate, minor reason: 12%;
Not a reason: 76%;
No response, not checked: 12%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
24 percent of respondents selected Other as a Major Reason; 5 out of 8
respondents mentioned caps reached or FAS 106 caps reached as part of
the reason.
[End of figure]
Large DB Plan Sponsor Survey: Health Benefits for Future Retirees:
* 46 percent of plan sponsors no longer offered retiree health benefits
to active employees hired after a certain date.
* 54 percent decreased or eliminated the firm's share cost of providing
health benefits for future retirees who were non-bargaining employees
(Figure 14);
- Primary reasons cited were large cost increases in health insurance
for both retirees and active employees (Figure 15).
* 41 percent of sponsors with bargaining unit employees reported
decrease in or elimination of firm's share of health care costs for
future retirees (Figure 14);
- 26 percent reported no change;
- Primary reason cited was match/maintain parity with competitor’s
benefits package (Figure 16).
Figure 14: Changes in Share of Health Benefit Costs for Future Retirees
by Non-bargaining Unit and Bargaining Unit Firms:
[Refer to PDF for image: horizontal bar graph]
N = 39 (NB plans); 22 (CB plans); 22 (NB & CB plans).
Employer share of cost decreased:
Respondents with plans covering CB employees: 32%;
Respondents with plans covering NB employees: 51%.
Employer share of cost increased:
Respondents with plans covering CB employees: 27%;
Respondents with plans covering NB employees: 26%.
Employer share of cost did not change:
Respondents with plans covering CB employees: 27%;
Respondents with plans covering NB employees: 15%.
Employer did not offer benefit, no response:
Respondents with plans covering CB employees: 5%;
Respondents with plans covering NB employees: 5%.
Employer eliminated benefit:
Respondents with plans covering CB employees: 9%;
Respondents with plans covering NB employees: 3%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
[End of figure]
Figure 15: Reasons for Changes in Non-Bargaining Unit Firms' Share of
Health Benefit Costs for Future Retirees:
[Refer to PDF for image: horizontal bar graph]
N = 31.
Top Major Reasons and Not Reasons selected for changes in firms' share
of health benefit costs:
Large increases in cost of health insurance coverage for retirees:
Major reason: 71%;
Moderate, minor reason: 26%;
Not a reason: 3%;
No response, not checked: 0%.
Large increases in cost of health insurance coverage for active
employees:
Major reason: 26%;
Moderate, minor reason: 35%;
Not a reason: 32%;
No response, not checked: 7%.
Match/maintain parity with competitor's benefits package:
Major reason: 10%;
Moderate, minor reason: 55%;
Not a reason: 26%;
No response, not checked: 9%.
Uncertainty surrounding the application of accounting rule changes for
health insurance costs:
Major reason: 6%;
Moderate, minor reason: 26%;
Not a reason: 61%;
No response, not checked: 7%.
Rising costs of other benefits provided that are needed to recruit
employees:
Major reason: 3%;
Moderate, minor reason: 29%;
Not a reason: 61%;
No response, not checked: 7%.
Maintain comparability with provisions of collective bargaining
agreements:
Major reason: 0%;
Moderate, minor reason: 10%;
Not a reason: 77%;
No response, not checked: 13%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
[End of figure]
Figure 16: Reasons for Changes in Collective Bargaining Unit Firms'
Share of Health Benefit Costs for Future Retirees:
[Refer to PDF for image: horizontal bar graph]
N = 15.
Top Major Reasons and Not Reasons selected for changes in firms' share
of health benefit costs:
Match/maintain parity with competitor's benefits package:
Major reason: 13%;
Moderate, minor reason: 33%;
Not a reason: 47%;
No response, not checked: 7%.
Large number of former bargaining unit members as retirees:
Major reason: 13%;
Moderate, minor reason: 27%;
Not a reason: 53%;
No response, not checked: 7%.
Demographics of bargaining unit (increasing average age):
Major reason: 13%;
Moderate, minor reason: 27%;
Not a reason: 53%;
No response, not checked: 7%.
Defined benefit retirement plans were generally decreased as a
tradeoff:
Major reason: 0%;
Moderate, minor reason: 0%;
Not a reason: 93%;
No response, not checked: 7%.
Employer share 401(k) or other defined contribution retirement plan
benefits were decreased as a tradeoff:
Major reason: 0%;
Moderate, minor reason: 0%;
Not a reason: 93%;
No response, not checked: 7%.
Health benefits for active employees were reduced as tradeoff:
Major reason: 0%;
Moderate, minor reason: 0%;
Not a reason: 93%;
No response, not checked: 7%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
40 percent of respondents selected Other as a Major Reason; within the
Other reasons listed by these respondents, there were no consistent
responses.
[End of figure]
Retiree Health Care Represents a Significant Liability for DB Plan
Sponsors:
As of the end of 2004, 29 DB plan sponsors reported a total liability
for retiree health plan year was $68 billion.
* This was about 18 percent of the $370 billion of total DB liabilities
that we estimated for all respondents from the 2004 Form 5500.
* If we include the liabilities of only those that reported a retiree
health liability, then the retiree health represented 40 percent of
their estimated DB liabilities ($174 billion; covered by $180 billion
in assets).
We chose 2004 because:
* We used 2004 Form 5500 data to select the respondents; and;
* Changes occurred with respect to the accounting treatment of health
care liabilities that made it difficult to ascertain those liabilities
in later years.
Large DB Plan Sponsor Survey: Most Sponsors Reported Few Planned
Changes Before 2012:
When sponsors were asked about prospective changes to benefit
offerings, most plan sponsors reported no firm plans to revise benefit
formulas, freeze or terminate plans, or convert hybrid plans before
2012:
* More than 60 percent of respondents planned no change to formula for
calculating the rates of benefit accrual provided by DB plan.
* More than 60 percent of respondents believed their firm will probably
not or definitely not freeze at least one DB plan.
* 80 percent of respondents believed their firm will probably not or
definitely not convert DB plans to cash balance or other hybrid plans.
* 79 percent of respondents believed their firm will probably not or
definitely not terminate DB plans.
Large DB Plan Sponsor Survey: Sponsors Expect Few Changes to Their
Pension Plans:
When sponsors were asked about how the pension environment (i.e. laws,
accounting rules, etc.) might influence future benefit offerings, a
majority respondents believed it unlikely or very unlikely that firm
would:
* use assets from DB to fund qualified health plans;
* increase employer match for DC plans;
* terminate at least one DB plan;
* amend at least one DB plan to change (either increase or decrease)
rates of future benefit accruals;
* convert DB plan to cash balance or hybrid plan;
* replace DB plan with 401(k)-style DC plan.
PPA, FASB played virtually no role in changes to retirement plans.
Large DB Plan Sponsor Survey: Limited Changes to DB and DC plans in
response to PPA, FASB, or other changes prior to passage of PPA:
* 50 percent of sponsors believed adding or expanding automatic
enrollment features to 401(k)-type DC plans was very likely or likely
in the future;
- 43 percent of these said PPA played major role in this expansion.
* 45 percent of respondents believed changing the investment policy for
at least one DB plan to increase the portion of the plans’ portfolio
invested in fixed income assets was very likely or likely;
- 21 percent said PPA played major/moderate role; 29 percent said FASB
played major/moderate role.
Large DB Plan Sponsor Survey: Conditions to Consider Forming New DB
Plans:
* Most sponsors reported no possible conditions that could make them
definitely consider forming a new DB plan.
* 26 percent of sponsors reported that there were conditions under
which they would have considered offering a new DB plan; the most
common conditions selected were:
- Provide sponsors with greater scope in accounting for DB plans on
corporate balance sheets;
- DB plans became more effective as an employee retention tool;
- Reduced unpredictability or volatility in DB plan funding
requirements (Figure 17).
Figure 17: Among the 26 Percent of Respondents that Would Consider a
New DB Plan, Conditions Under Which They Would Consider Doing So:
[Refer to PDF for image: horizontal bar graph]
N = 15.
Provide sponsors with greater scope in accounting for DB plans on
corporate balance sheets:
Definitely, probably consider: 73%;
Probably not, definitely not consider: 18%;
Equally consider as not: 0%;
Don't know, no opinion, no response: 9%.
DB plans became more effective as an employee retention tool:
Definitely, probably consider: 64%;
Probably not, definitely not consider: 18%;
Equally consider as not: 9%;
Don't know, no opinion, no response: 9%.
Reduced unpredictability or volatility in DB plan funding requirements:
Definitely, probably consider: 64%;
Probably not, definitely not consider: 18%;
Equally consider as not: 9%;
Don't know, no opinion, no response: 9%.
DB plans became the standard for retirement benefits in the firms
industry:
Definitely, probably consider: 64%;
Probably not, definitely not consider: 18%;
Equally consider as not: 9%;
Don't know, no opinion, no response: 9%.
Increase in tax deductibility of DB plans compared to DC plans:
Definitely, probably consider: 64%;
Probably not, definitely not consider: 9%;
Equally consider as not: 18%;
Don't know, no opinion, no response: 9%.
Reduced regulatory/administrative requirements for DB plans:
Definitely, probably consider: 55%;
Probably not, definitely not consider: 18%;
Equally consider as not: 18%;
Don't know, no opinion, no response: 9%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
[End of figure]
Figure 18: Conditions Under Which Firms Would Have Considered Offering
Employees a New DB Plan:
[Refer to PDF for image: horizontal bar graph]
N = 11.
DB plans became more effective as an employee recruitment tool:
Definitely, probably consider: 55%;
Probably not, definitely not consider: 18%;
Equally consider as not: 18%;
Don't know, no opinion, no response: 9%.
Mitigation of constraints with respect to ERISA nondiscrimination or
"top-heavy" rules:
Definitely, probably consider: 36%;
Probably not, definitely not consider: 38%;
Equally consider as not: 18%;
Don't know, no opinion, no response: 9%.
Increased costs of DC plans:
Definitely, probably consider: 37%;
Probably not, definitely not consider: 64%;
Equally consider as not: 0%;
Don't know, no opinion, no response: 9%.
DB plan was a consequence of collective bargaining negotiations:
Definitely, probably consider: 27%;
Probably not, definitely not consider: 9%;
Equally consider as not: 18%;
Don't know, no opinion, no response: 45%.
Reduced PBGC premiums:
Definitely, probably consider: 18%;
Probably not, definitely not consider: 45%;
Equally consider as not: 27%;
Don't know, no opinion, no response: 9%.
Increased regulatory requirements of DC plans:
Definitely, probably consider: 0%;
Probably not, definitely not consider: 64%;
Equally consider as not: 27%;
Don't know, no opinion, no response: 9%.
Source: GAO analysis of survey of sponsors of large defined benefit
pension plans.
Note: The top three key reasons are ranked in declining order of the
percentage of firms listing a ‘major reason,’ while the bottom three
reasons are listed in declining order of firms listing ‘not a reason.’
[End of figure]
Implications/Concluding Observations:
Stability of large sponsor plans now increasingly vulnerable to the
broader decline of the DB system.
* Benefit formula revisions and plan freezes common among survey
respondents, especially among NB plans, but among CB plans as well.
Findings consistent with mounting evidence of challenges facing private
sector retirement system.
* DC plans losses from current markets, low coverage participation
rates high fees.
* Current market turmoil exacerbates these challenges.
Findings highlight need for examination of current system’s problems
and the need to consider alternative models.
[End of section]
Appendix II: Scope and Methodology:
To achieve our objectives, we conducted a survey of sponsors of large
defined-benefit (DB) pension plans. For the purposes of our study, we
defined "sponsors" as the listed sponsor on the 2004 Form 5500 for the
largest sponsored plan (by total participants).[Footnote 53] To
identify all plans for a given sponsor, we matched plans through unique
sponsor identifiers.[Footnote 54]
Population and Sample Design:
We constructed our population of DB plan sponsors from the 2004 Pension
Benefit Guaranty Corporation's (PBGC) Form 5500 Research Database by
identifying unique sponsors listed in this database and aggregating
plan-level data (for example, plan participants) for any plans
associated with this sponsor. As a result of this process, we
identified approximately 23,500 plan sponsors. We further limited these
sponsors to the largest sponsors (by total participants in all
sponsored plans) that also appeared on the Fortune 500 or Fortune
Global 500 lists. We initially attempted to administer the survey to
the first 100 plans that met these criteria, but ultimately, we were
only able administer the survey to the 94 sponsoring firms for which we
were able to obtain sufficient information for the firm's benefits
representative. While the 94 firms we identified for the survey are an
extremely small subset of the approximately 23,500 total DB plan
sponsors in the research database, we estimate that these 94 sponsors
represented 50 percent of the total single-employer liabilities insured
by PBGC and 39 percent of the total participants (active, retired, and
separated-vested) in the single-employer DB system as of 2004.
Administration of Survey:
The Web-based questionnaire was sent in December 2007, via e-mail, to
the 94 sponsors of the largest DB pension plans (by total plan
participants as of 2004) who were also part of the Fortune 500 or
Global Fortune 500. This was preceded by an e-mail to notify
respondents of the survey and to test our e-mail addresses for these
respondents. This Web questionnaire consisted of 105 questions and
covered a broad range of areas, including:
* the status of current DB plans;
* the status of frozen plans (if any) and the status of the largest
frozen plan (if applicable);
* health care for active employees and retirees;
* nonwage compensation priorities;
* pension and other benefit practices or changes over approximately the
last 10 years[Footnote 55] and the reasons for those changes[Footnote
56] (parallel questions asked for plans covering collectively bargained
employees and those covering nonbargaining employees);[Footnote 57]
* prospective benefit plan changes;
* the influence of laws and accounting practices on possible
prospective benefit changes; and:
* opinions about the possible formation of a new DB plan.
The first 17 questions and last question of the GAO Survey of Sponsors
of Large Defined Benefit Pension Plans questionnaire mirrored the
questions asked in a shorter mail questionnaire (Survey of DB Pension
Plan Sponsors Regarding Frozen Plans) about benefit freezes that was
sent to a stratified random sample of pension plan sponsors that had
100 or more participants as of 2004. Sponsors in the larger survey
were, like the shorter survey, asked to report only on their single-
employer DB plans.
To help increase our response rate, we sent four follow-up e-mails from
January through November 2008. We ultimately received responses from 44
plan sponsors, representing an overall response rate of 44 percent.
To pretest the questionnaires, we conducted cognitive interviews and
held debriefing sessions with 11 pension plan sponsors. Three pretests
were conducted in-person and focused on the Web survey, and eight were
conducted by telephone and focused on the mail survey. We selected
respondents to represent a variety of sponsor sizes and industry types,
including a law firm, an electronics company, a defense contractor, a
bank, and a university medical center, among others. We conducted these
pretests to determine if the questions were burdensome, understandable,
and measured what we intended. On the basis of the feedback from the
pretests, we modified the questions as appropriate.
Nonsampling Error:
The practical difficulties of conducting any survey may introduce other
types of errors, commonly referred to as nonsampling errors. For
example, differences in how a particular question is interpreted, the
sources of information available to respondents, or the types of people
who do not respond can introduce unwanted variability into the survey
results. We included steps in both the data collection and data
analysis stages for the purpose of minimizing such nonsampling errors.
We took the following steps to increase the response rate: developing
the questionnaire, pretesting the questionnaires with pension plan
sponsors, and conducting multiple follow-ups to encourage responses to
the survey.
We performed computer analyses of the sample data to identify
inconsistencies and other indications of error and took steps to
correct inconsistencies or errors. A second, independent analyst
checked all computer analyses.
We initiated our audit work in April 2006. We issued results from our
survey regarding frozen plans in July 2008.[Footnote 58] We completed
our audit work for this report in March 2009 in accordance with all
sections of GAO's Quality Assurance Framework that are relevant to our
objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
Contact:
Barbara D. Bovbjerg, (202) 512-7215 or bovbjergb@gao.gov.
Staff Acknowledgments:
In addition to the contact above, Joe Applebaum, Sue Bernstein, Beth
Bowditch, Charles Ford, Brian Friedman, Charles Jeszeck, Isabella
Johnson, Gene Kuehneman, Marietta Mayfield, Luann Moy, Mark Ramage, Ken
Stockbridge, Melissa Swearingen, Walter Vance, and Craig Winslow made
important contributions to this report.
[End of section]
Footnotes:
[1] Employers may sponsor defined benefit (DB) or defined contribution
(DC) plans for their employees. DB plans promise to provide a benefit
that is generally based on an employee's salary and years of service.
29 U.S.C. § 1002(35). DB plans use a formula to determine the ultimate
pension benefit participants are entitled to receive. Under a DC plan,
such as a 401(k) plan, employees have individual accounts to which the
employee, employer, or both make contributions, and benefits are based
on contributions, along with investment returns (gains and losses) on
the accounts. 29 U.S.C. § 1002(34).
[2] See Pension Benefit Guaranty Corporation, Pension Insurance Data
Book 2007, Number 12 (Washington, D.C.,Winter 2008), page 70.
[3] See GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of
Participants and May Pose Retirement Income Challenges, [hyperlink,
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 21,
2008).
[4] The most common tax-advantaged savings arrangements that enrollees
can use to pay for a portion of their health expenses are health
reimbursement arrangements (HRA) or health savings accounts (HSA).
These accounts allow funds to accrue over time. HRA accounts are owned
by the employer, and only the employer may contribute to them. HSAs are
owned by the enrollee and, therefore, are portable when workers change
jobs. Both employers and enrollees can make contributions to HSAs. See
GAO, Employer Sponsored Health and Retirement Benefits: Efforts to
Control Employer Costs and the Implication for Workers, [hyperlink,
http://www.gao.gov/products/GAO-07-355] (Washington, D.C.: Mar. 30,
2007).
[5] We previously used a portion of this survey to analyze frozen plan
tendencies, which used a stratified random probability sample of 471 DB
pension sponsors from PBGC's 2004 Form 5500 Research Database. See
[hyperlink, http://www.gao.gov/products/GAO-08-817].
[6] Cash balance plans are referred to as hybrid plans because,
legally, they are DB plans but contain certain features that resemble
DC plans. Similar to traditional DB plans, cash balance plans use a
formula to determine pension benefits. However, unlike traditional
final average pay plans that pay retirement benefits on the basis of an
annuity amount calculated using years of service and earnings, cash
balance plans express benefits as a hypothetical individual account
balance that is based on pay credits (percentage of salary or
compensation) and interest credits, rather than an annuity.
[7] Or 34 of 42 respondents that answered this question for either
their plans covering nonbargaining employees only or their plans
covering collectively bargained employees. All results in this report
are unweighted. For example, results reported on a respondent basis are
not additionally weighted by another factor such as plan liabilities or
the number of participants in the responding sponsors' plans.
[8] Or 14 of 24 respondents that answered the question for their plans
covering collectively collective-bargaining employees.
[9] Or 19 of 40 respondents that answered the question for their plans
covering nonbargaining employees only.
[10] Respondents may be responding for both questions relating to plans
covering nonbargaining unit employees only and questions relating to
plans covering bargaining unit employees. For the question relating to
DB formula changes, 24 respondents answered both questions.
[11] This reason was most common, both among those reporting a change
and among only those respondents reporting a formula decrease.
[12] See appendix II for an explanation of the difference between
collectively bargained plans and collectively bargained employees.
[13] A flat-benefit plan uses a formula multiplying a beneficiary's
months of service by a predetermined, flat, monthly rate. This
contrasts with the more typical unit credit plan, which typically uses
a formula multiplying a beneficiary's years of service by a percentage
of his or her salary. Flat-benefit plans are more common in
collectively bargained plans where the range of monthly wages between
employees is comparatively small. Because, typically, an employee's
wages often increase over time, flat-benefit plans are amended, usually
in conjunction with a new collective-bargaining agreement, by raising
the monthly rate. As such, a cost-of-living adjustment for an employee
with a pension using a flat-benefit formula may be thought of as
analogous to a wage increases that may be witnessed by an employee with
a pension using a unit credit formula.
[14] Or 21 of 40 respondents that answered the question for their plans
covering non-bargaining employees only.
[15] Or 5 of 24 respondents that answered the question for their plans
covering collective-bargaining employees.
[16] Or 26 of 42 respondents that answered the question.
[17] Or 14 plans as hard frozen, among the 169 total plans reported by
42 respondents.
[18] Or 33 plans as soft, partial, or other freeze, among the 169 total
plans reported by 42 respondents.
[19] A soft freeze is a freeze that limits future benefit accruals
based on a component of the benefit accrual formula (that is, the
service or salary component), and at a minimum, closes the plan to new
participants. A partial freeze is a freeze that closes the plan to new
entrants and, for only a subset of active participants, the plan's
prospective benefit formula is changed to limit or cease future benefit
accruals.
[20] See [hyperlink, http://www.gao.gov/products/GAO-08-817]. Many of
the large sponsors in the GAO Survey of Large Defined Benefit Sponsors
were included as a subset of sponsors in the Survey of Plan Freezes.
[21] Or 38 of 42 respondents that answered 401(k)-related questions for
either their plans covering nonbargaining employees only or their plans
covering collectively bargained employees.
[22] Or 28 of 42 respondents that answered the automatic enrollment
question for either their plans covering only nonbargaining employees
or their plans covering collectively bargained employees.
[23] See Congressional Research Service, Automatic Enrollment in 401(k)
Plans, RS21954 (Washington, D.C., Jan. 16, 2007). The PPA amended the
Employee Retirement Income Security Act of 1974 (ERISA) to provide that
under default investment arrangements that provide participants with
required notice, employers and other plan fiduciaries will not be held
liable for losses to the same extent as if a participant had exercised
control of the investment. PPA § 624, 120 Stat. 980. The law also
provided that automatic contribution arrangements that provide
automatic deferral of pay, matching or nonelective contributions, and
notice to employees will be deemed to meet the nondiscrimination
requirements of the Internal Revenue Code. PPA §§ 902(a), 120 Stat.
1033-35. It also provided that plans consisting solely of contributions
made through automatic enrollment will not be considered top-heavy
plans. PPA § 902(c), 120 Stat. 1036.
[24] Or 28 of 39 respondents that answered the question for their plans
covering non-bargaining employees only.
[25] Or 11 of 24 respondents that answered the question for their plans
covering collective-bargaining employees.
[26] Twenty-five respondents reported their firm's percent of base pay
devoted to active employee health plans, and 25 respondents reported
their firm's percent of base pay devoted to retiree health plans.
[27] Twenty-five respondents reported their firm's percent of base pay
devoted to DB plans, and 25 respondents reported their firm's percent
of base pay devoted to DC plans.
[28] Or 42 of the 42 respondents that answered the questions.
[29] Or 33 of the 41 respondents that offered a retiree health benefit
to at least some current employees.
[30] Or 8 of the 41 respondents that offered a retiree health benefit
to at least some current employees.
[31] These figures are not necessarily mutually exclusive. The very
same respondents could answer multiple questions about features of
their current retiree health offering or offerings.
[32] Or 19 of the 41 respondents that offered a retiree health benefit
to at least some current employees.
[33] Or 11 of 40 respondents that answered the question for their plans
covering nonbargaining employees only.
[34] Or 3 of 23 respondents that answered the question for their plans
covering collective-bargaining employees.
[35] We do not report selected reasons for respondents reporting for
their collectively bargained employees, as the response rate for the
question was not robust.
[36] A cost cap is a limitation placed on an employer's share of costs.
A few firms specifically cited Financial Accounting Standard (FAS) 106
as the impetus for the cap. FAS 106 outlines accounting practices for
postretirement benefits other than pensions, which includes health
plans.
[37] Or 21 of 39 respondents that answered the question for their plans
covering nonbargaining employees only.
[38] These respondents indicated that "large cost increases in health
insurance for retirees" and "large cost increases in health insurance
for active employees" were the major reasons for the change to benefits
(Appendix I, slide 31). Interestingly, these reasons were ranked as top
reasons for respondents that specifically reported an increase in an
employer's share of the cost, as well as those that specifically
reported a decrease.
[39] Or 9 of 22 respondents that answered the question for their plans
covering collective-bargaining employees.
[40] We asked for this somewhat older information for two reasons: (1)
we used 2004 Form 5500 information to construct the survey sample, and
we could use this information to compare the reported retiree health
liabilities to the DB liabilities of the responding plan sponsors; and
(2) changes occurred with respect to the accounting treatment of health
care liabilities with the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. No. 108-173, 117 Stat. 2006),
which could potentially make consistent comparisons of liabilities in
later years difficult. For more information on MMA and its effect on
accounting, see GAO, Retiree Health Benefits: Options for Employment-
Based Prescription Drug Benefits under the Medicare Modernization Act,
[hyperlink, http://www.gao.gov/products/GAO-05-205] (Washington, D.C.:
Feb. 5, 2005).
[41] The tax treatment of such funding is extremely unfavorable,
especially when compared to the treatment accorded the funding of
pensions. Contributions in excess of those needed for retiree health
benefits currently payable are not deductible from a corporation's
income for tax purposes. Further, to the extent that excess funds are
contributed, any investment earnings on those accumulations are
considered to be income to the plan sponsor. On the other hand, when
the health benefits are paid, they become an expense of the plan
sponsor. This is exactly the reverse of the treatment of pensions. For
pensions, the contributions to tax-qualified plans are, within limits,
an ordinary business expense and, hence, are deductible from the
sponsor's income; investment earnings on the accumulations are
deferred; and benefit payments do not reduce the sponsor's income but
are considered income to the recipient.
[42] More than 60 percent (or 27 of 42) of respondents planned no
change to formula for calculating the rates of benefit accrual provided
by DB plan; more than 60 percent (or 27 of 42) of respondents believed
their firm will probably not or definitely not freeze at least one DB
plan; 80 percent (or 34 of 42) of respondents believed their firm will
probably not or definitely not convert DB plans to cash balance or
other hybrid plans; and 79 percent (or 33 of 42) of respondents
believed their firm will probably not or definitely not terminate DB
plans.
[43] Of the 11 firms that indicated a freeze for new participants was
likely, 8 firms said that PPA played a role in the decision--4 of which
selected "major role."
[44] Of the 5 firms that indicated replacing a DB plan with a 401(k)-
style DC plan was likely, 4 indicated that both PPA and FASB played a
role--2 of which selected "major role" for each.
[45] Or 21 of 42 respondents that answered this question for their
plans covering nonbargaining employees and/or their plans covering
collectively bargained employees.
[46] Or 18 of 42 respondents that answered this question for their
plans covering nonbargaining employees and/or their plans covering
collectively bargained employees.
[47] The role of PPA is more pronounced among the 50 percent that
indicated this change was likely; of these, 71 percent (15 out of 21)
indicated that PPA played a "major role."
[48] Or 19 of 42 respondents that answered this question for their
plans covering nonbargaining employees and/or their plans covering
collectively bargained employees.
[49] Or 9 of 42 respondents that answered this question for their plans
covering nonbargaining employees and/or their plans covering
collectively bargained employees.
[50] Or 12 of 42 respondents that answered this question for their
plans covering nonbargaining employees and/or their plans covering
collectively bargained employees.
[51] The role of PPA and FASB is more pronounced among the 45 percent
of respondents that indicated this change was likely; of these, 47
percent (9 out of 19) indicated PPA played a role, and 63 percent (12
out of 19) indicated FASB played a role.
[52] Or 11 of 42 respondents that answered this question for their
plans covering nonbargaining employees and/or their plans covering
collectively bargained employees.
[53] At the time of sample selection we removed plans that terminated
after 2004, which may have also included plans that reported a final
filing or had merged into another plan.
[54] These include the nine-digit employee identification number (EIN)
found in the Form 5500, as well as the Committee on Uniform Securities
Identification Procedures (CUSIP) number, which is contained in the
PBGC Research Database. A CUSIP number identifies most North American
securities, including stocks of all registered U.S. and Canadian
companies and U.S. government and municipal bonds. The number consists
of nine characters (including letters and numbers) that uniquely
identify a company or issuer and the type of security. In addition to
these two methods, we identified sponsors by visually inspecting plan
names and sponsor names from the database to find common sponsors that
were not identified by EINs or CUSIPs.
[55] The GAO Survey of Large Defined Benefit Plan Sponsors asked firms
about changes made to benefit offerings between 1997 and the time of
survey response, which for nearly all responding sponsors, was prior to
July 2008.
[56] The reasons varied by the individual question. We developed an
initial set of reasons that we pretested with sponsors, and we revised
our list of reasons, given respondent reactions and input during those
pretests. An open-ended "other" reason was also offered to respondents
if the sponsor felt other reasons were needed to clarify an answer.
[57] The parallel questions in the survey asked the respondents to
report for "plans covering nonbargaining unit employees only" and
"plans covering collective-bargaining unit employees." Generally
speaking, 40 respondents reported on the questions referring to plans
covering nonbargaining unit employees, and 24 respondents reported on
the questions referring to plans covering collective-bargaining unit
employees. The 24 respondents that answered questions related to plans
covering collective-bargaining unit employees generally also answered
questions relating to plans covering nonbargaining unit employees. The
number of respondents for a given survey question are enumerated in the
briefing as "Ns" in Appendix II. While we attempted to use consistent
terminology for bargaining status throughout the survey, plans covering
collectively bargained employees are not necessarily the same as
collectively bargained plans. Some collectively bargained plans may
cover nonbargaining unit employees--possibly under a separate
nonnegotiated benefit structure. Further, a plan covering members of a
bargaining unit is sometimes not collectively bargained, although
collectively bargained pension plans are common among large plan
sponsors that have employees covered by collective-bargaining
agreements. Our survey only asked about plans covering collectively
bargained employees, and we cannot determine if these plans also
include nonbargained employees or if the plan itself is actively
bargained.
[58] We previously used a portion of this survey to analyze frozen plan
tendencies, which used a stratified random probability sample of 471 DB
pension sponsors from PBGC's 2004 Form 5500 Research Database. See GAO,
Defined Benefit Pensions: Plan Freezes Affect Millions of Participants
and May Pose Retirement Income Challenges, [hyperlink,
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 21,
2008).
[End of section]
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